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Wednesday, February 20, 2008

Auction Rate Securities Round-Up

The financial media is moving the needle forward with regard to the auction rate securities crisis. Both the New York Times and Dow Jones have interesting takes today:

  • Floyd Norris reports that auctions continue to fail and that municipalities as a result will likely pay more to borrow money. The article reports that that some auctions - such as those issued by leveraged municipal bond funds - are in dire straits.

  • Dow Jones reports that as far back as 1992, auction rate securities triggered arbitration panels to award claims to investors. An arbitration panel awarded an investor group $2.2 million siding with them over Goldman Sachs who allegedly hid the risk associated with ARSs. A second, separate arbitration award was later granted to an investor with similar claims.

Arbitration awards as far back in 1992 are significant. Recall that it wasn’t until 2006 that the SEC made its illusionary attempt to reform the auction rate securities market. With evidence of alleged widespread bid rigging and arbitration awards due to inadequate risk disclosures, regulators turned a blind eye to what has developed into a $350 billion debacle.

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Anonymous Anonymous said...

I received a form letter from Morgan, my broker that simply stated "the firm is not willing to expose its capital to the risks of supoorting the auctions". Funny they didn't worry about exposing their clinets money to the exposure so they could rake in fees. I deposited $300,000 in Morgan and was looking to buy CD's and money markets. My broker , I am sure with guidance from above, told me " no you want ARS backed by Muni's; tax exempt, liquid, and as safe as money markets. I hope the regulatory agencies and class action attorneys crucify these firms. I also hope that the government has the guts to let these firms fail if they have to, they deserve it. I worked on Wall St. for yeas believe me new firms will emerge and the financial markets will survive. THis country has to get theses coniving thiefs on Wall St. under control or it will be the end of our financial stability as a nation

9:17 PM  

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